Tapping the Potential of the Amazon Cloud

The recently released “2011 US Insurance CIO Survey” from Celent provides a great snapshot of where insurance CIOs are focused in a number of areas. While cloud computing is clearly emerging, it’s interesting that of the surveyed respondents:

No companies reported that cloud computing is “in wide use”

38% of companies have cloud computing “in limited use”

52% “will investigate/pilot in 2011”

Obviously, it’s still in the early stages and it will take a few years for the model to develop and for cloud computing to be fully exploited. Because the benefits are so great, I believe that companies and providers will quickly start to find new and interesting ways to tap into the vast potential of “the cloud”.

In our case, I can’t see how we could have gotten FAST off the ground without the Amazon Cloud. In 2010, we paid Amazon between $1,500 and $2,000 each month – about $20,000 annualized. What do we get for that?

2 Linux servers. Each has 150 GB of disk space, single processor, and 2 GB of memory

If we need a new server, it literally takes minutes. We pay for what we need, when we need it. We don’t have an MIS department. We don’t have a server room.

Doing this “the old way”, we would have spent vast sums on hardware and building out a server room. And we would have had to hire experts to configure and manage the servers. Even if we had done this “on the cheap”, we would have spent $250,000 to $300,000 on hardware and staff (compared to about $20,000). As a startup, it’s almost impossible to replicate the quality and stability of the Amazon environment at any price. Having lived through that in the past, there’s a tremendous drain on management and on staff productivity as you iterate toward a “rock solid” environment.

In other words, we paid Amazon less than 10% of what it would have cost to do it ourselves. THAT’S 90% LESS for something better.

So, does this have any implication for the insurance industry more broadly? It sure does. While the option of putting everything “up on the cloud” would not be practical today for a large insurer, as the industry moves to a more SOA-based approach it is practical to deploy discrete web services or components on the cloud. The potential is obvious and the benefits could be extraordinary.